How Does a Collection Negatively Impact My Credit Score?

Credit card companies and businesses to whom you owe money usually do not pursue you forever. MSN Money website writer Liz Pulliam Weston explains that they try to collect for about six months. Most write off the owed balance if you make no payments in that time frame, but this does not remove your liability. The account typically gets sold to a debt collector, which compounds the damage to your credit score.

Effects

Your Experian, Equifax and TransUnion reports show past due and charged off accounts, which hurts your credit score. Most debt collectors add another entry when they purchase accounts, reflecting the collection status. The MyFICO credit score website states that charge-offs and collections are considered part of your overall payment history. Thirty-five percent of your total score is based on this category, so collections have a major negative impact.

Time Frame

Collection accounts do not impact your credit score forever, even if you never pay off the debt entirely. The Federal Trade Commission explains that the credit bureaus remove most negative items, including collections, after seven years. Credit scores are based on information in your reports, so erased items have no effect on your score. You may request the removal of an item by filing disputes with Experian, Equifax and TransUnion if a collection account still shows up after seven years from the original delinquency day. Check for outdated collections by ordering free credit reports through AnnualCreditReport.com, which provides them once per year.

Solution

Collection agencies have the ability to remove accounts from your credit reports, although they do not do this automatically, even if you pay. You can negotiate erasure as part of any settlement agreement on an old bill, and you can insist that the debt collector put that promise in writing, Bankrate columnist Steve Bucci advises. Do not agree to a "paid" or "settled" notation, because the collection account negatively impacts your credit score as long as it appears on your credit reports, regardless of its status.

Warning

Unscrupulous collection agencies sometimes threaten to add outdated debts to your credit reports after the legal reporting time has elapsed. These firms are known as "zombie" debt collectors, because they buy old bills that are no longer legally collectible and try to trick consumers into paying, Pulliam Weston warns. Every state puts a limit on collection times. Ignore threats from collectors who try to get money from you once the statute of limitations has passed. File disputes with the credit bureaus if the account ever shows up on your records.